Tinpusher007

It appears that DL is taking some unfavorable but necessary steps to stem losses and deal with fuel costs. Comments?

Airline tightens belt to offset fuel prices

By RUSSELL GRANTHAM
The Atlanta Journal-Constitution

Published on: 12/04/07

Delta Air Lines plans some job cuts, a partial hiring freeze, fleet reductions and other steps to cut capacity in response to high fuel costs, the carrier's president said Tuesday.

Delta President Ed Bastian said the carrier has set a "$400 million productivity target" for next year to offset jet fuel costs that have soared in tandem with near-record crude oil prices, which reached almost $100 a barrel in recent weeks.

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"We are pulling down domestic supply considerably," Bastian said during a Web cast of an investors conference.

In updated guidance to investors, Bastian said Delta now expects its operating profit margins in the final three months of the year to be flat or down 2 percent as a result of high fuel prices. The carrier had earlier projected operating margins of 3 percent to 5 percent in the fourth quarter.

The revised estimate means Delta will likely report a loss in the fourth quarter.

This year, airlines had been rebounding after years of losses as Delta and other carriers emerged from bankruptcy reorganizations with much leaner operations.

But Bastian said Delta is once again taking cost-cutting measures such as freezing new hires in "non-public-facing" job categories and targeting some unspecified positions for cuts. It is also parking aircraft and reducing its marketing budget in the face of a steep rise in fuel costs, its largest expense.

Delta now expects its average fuel price in the final three months of the year to be $2.60 per gallon, about 13 percent higher than previous projections. Jet fuel is Delta's largest expense.

Bastian said the carrier plans to freeze staff jobs that don't deal directly with customers. He said Delta has also "targeted some job cuts" but didn't offer specifics.

He said Delta has returned seven leased mainline jets and six smaller regional jets to reduce flying in the United States, and will cut 45 more jets next year.

"We'll take further steps to reduce supply" if fuel prices don't "stabilize," he said.

The carrier has more than 400 mainline jets in its fleet.

The reductions in Delta's domestic flying continue a strategy the airline has relied on during much of its turnaround efforts, as the growing competition from discount carriers has made many U.S. routes unprofitable for big network carriers.

Bastian said Delta will continue growing its more profitable overseas flying next year, where it is better able to pass higher fuel costs on to customers.

"We'll be growing international in relatively unabated terms," he said.

Anticipating questions about the airline industry's sagging stock performance, Bastian "we're also looking at the consolidation question" and taking other steps to boost Delta's market value.

He repeated an earlier announcement that a committee of its directors is looking at options ranging from acquiring another carrier to remaining an independent airline.

He said Delta will also take steps to more clearly report the financial performance of some of its operations that provide services to outside businesses, such as the maintenance division, its Delta Air Elite business jet unit, and its Comair regional carrier, which has previously said it is considering selling.